Massachusetts/federal tax differences
Massachusetts tax law is similar to but not the same as federal. When examining the differences keep these 4 considerations in mind:
- MA defines income by reference to the IRS Code (IRC). In current law there are 2 sets of references:
- For the definition of gross income the Code now in effect is that of 1/1/05. All changes that effect gross income made to the IRC after that date are not recognized.
- In the case of sale of principal residence, trade or business deductions, retirement plans & ROTH IRAs, the reference is always to the current code.
- Article 44 of the MA Constitution requires that the same class of income must be taxed at the same rate. This is the reason why there are different classes of income and why MA cannot have a graduated income tax rate.
- MA does not allow federal itemized deductions.
- MA has several additional deductions of it’s own. An example would be medical or adoption deduction, which are specifically allowed in MA law.
- The Massachusetts estate tax references the Federal Tax code as of 1/1/1999 with a $1,000,000 exemption.
- For more information see the Massachusetts Department of Revenue website.
A List of Common Federal/Massachusetts Tax Differences:
Item of Income or Deduction
|Capital Losses||Deductible against gains in part against income Ð Carry forward available||MA has its own treatment without regard to the Federal law|
|Capital Gains||Calculated @ varying rates||MA taxes long term gains at 5.2% and short term gains at 12%|
|Excess Trade or Business Deductions||Does not exist federally||Concept reinstated as of 1/1/96|
|Interest on Student Loans||Allowed as a deduction against AGI on page one of the 1040 up to $2,500||Fully deductible, not limited by federal law|
|Adoption Expenses||Federal credit||Fees fully deductible in year paid|
|ROTH IRAs||Non-deductible contribution Ð Distributions tax free||MA treatment the same|
|Education IRAs||Non-deductible contribution Ð Distributions tax free||MA treatment the same|
|Sale of Principal Residence||Excludes $250K or $500K if qualified||MA treatment the same|
|Section 162 "Trade or Business" Expenses||Deductible||MA treatment the same|
|Section 179 Depreciation||Allowable write-off in 2014 - $500K||MA treatment the same|
|SIMPLE plans for Employees||Excluded from gross income||MA treatment the same|
|SIMPLES for the Self-employed||Deducted from AGI||Not allowed as a deduction|
|Qualified Transportation Fringe Benefits||Allows employer parking, van pool, etc.||MA treatment the same|
|Moving Expense||Excluded from income||Excluded from income|
|Employer Contributions to MSA||Excluded from income||Excluded from income|
|Self-Employed Health Insurance||100% deductible||100% deductible|
|Real Estate Professionals||A concept allowed since 1996||Now recognized|
|Depreciation||Federal life & rate based on code of year put into service||Previously limited to code of 1998, now the depreciation will conform exactly to the federal amount except for bonus depreciation|
|1231 Property||If gain, property is taxed as if a capital asset Ð If sale is a loss it is taxed as if ordinary income subject to recapture||MA law makes it a capital asset always, not subject to recapture as ordinary income|
This material courtesy of Philip Dardeno, CPA MST of Reading, MA ~ 781-942-9820 & Appeals for both Corporations and Individuals.
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